nep-lma New Economics Papers
on Labor Markets - Supply, Demand, and Wages
Issue of 2018‒04‒23
fourteen papers chosen by
Joseph Marchand
University of Alberta

  1. Long-term Consequences of Early Parenthood By Eva Rye Johansen; Helena Skyt Nielsen; Mette Verner
  2. The Return to Work and Women’s Employment Decisions By Nicole Maestas
  3. Competition and the Racial Wage Gap: Testing Becker’s Model of Employer Discrimination By Guilherme Hirata; Rodrigo R. Soares
  4. The Returns to Schooling Unveiled By Cardoso, Ana Rute; Guimaraes, Paulo; Portugal, Pedro; Reis, Hugo
  5. The UK (and Western) productivity puzzle: does Arthur Lewis hold the key? By Oulton, Nicholas
  6. Local multipliers at work By Cerqua, Augusto; Pellegrini, Guido
  7. Gender & Collaboration By Lorenzo Ductor; Sanjeev Goyal
  8. Earning to Give: Occupational Choice for Effective Altruists By Jonathan Morduch; Ariane Szafarz
  9. Firming Up Inequality By Song, Jae; Price, David; Guvenen, Fatih; Bloom, Nicholas; von Wachter, Till
  10. Complexities in the spatial scope of agglomeration economies By Paul Verstraten; Gerard Verweij; Peter Zwaneveld
  11. Job Satisfaction among Young Workers in Eastern and Southern Africa: A Comparative Analysis By McKay, Andy; Newell, Andrew T.; Rienzo, Cinzia
  12. Earnings Inequality and the Minimum Wage: Evidence from Brazil By Engbom, Niklas; Moser, Christian
  13. Can Public and Private Sanctions Discipline Politicians? Evidence from the French Parliament By Benjamin Monnery; Maxime Le Bihan
  14. Why do wages grow faster in urban areas? Sorting of high potentials matters By Paul Verstraten; Gerard Verweij; Peter Zwaneveld

  1. By: Eva Rye Johansen (Department of Economics and Business Economics, Aarhus University, Denmark); Helena Skyt Nielsen (Department of Economics and Business Economics, Aarhus University, Denmark); Mette Verner (VIVE (The Danish Centre of Applied Social Science))
    Abstract: Having children at an early age is known to be associated with unfavorable economic outcomes, such as lower education, employment and earnings. In this paper, we study the long-term consequences of early parenthood for mothers and fathers. Our study is based on rich register-based data that, importantly, merges all childbirths to the children’s mothers and fathers, allowing us to study the consequences of early parenthood for both parents. We perform a sibling fixed effects analysis in order to account for unobserved family attributes that are possibly correlated with early parenthood. The analysis is based on Danish men and women born between 1968 and 1977, from whom we identify brothers and sisters, respectively. We find that early parenthood reduces educational attainment and employment, and that the relationship is only slightly weaker for men than for women. One exception is earnings (and to lesser extent employment), as fathers appear to support the family, especially when early parenthood is combined with cohabitation with the mother and the child. Heterogeneous effects reveal that individuals with a more favorable socioeconomic background are affected more severely than individuals with a less favorable background. We interpret this as evidence of higher opportunity costs or stigma.
    Keywords: Teenage childbearing, long-term outcomes, heterogeneous effects
    JEL: I21 J13 J24
    Date: 2018–04–09
  2. By: Nicole Maestas
    Abstract: It is well documented that individuals in couples tend to retire around the same time. But because women tend to marry older men, this means many married women retire at younger ages than their husbands. This fact is somewhat at odds with lifecycle theory that suggests women might otherwise retire at later ages than men because they have longer life expectancies, and often have had shorter careers on account of childrearing. As a result, the opportunity cost of retirement—in terms of foregone potential earnings and accruals to Social Security wealth—may be larger for married women than for their husbands. Using the Health and Retirement Study (HRS), I find evidence that the returns to additional work beyond mid-life are greater for married women than for married men. The potential gain in Social Security wealth alone is enough to place married women on nearly equal footing with married men in terms of Social Security wealth at age 70.
    JEL: J14 J22 J26 J3
    Date: 2018–03
  3. By: Guilherme Hirata; Rodrigo R. Soares
    Abstract: According to Becker’s (1957) theory of taste-based employer discrimination, pure economic rents are necessary for discrimination to be observed in the labor market. Increased competition and reduced rents in the market for final goods should therefore lead to reduced labor market discrimination. We look at the natural experiment represented by the Brazilian trade liberalization from the early 1990s to study the effect of increased competition in the market for final goods on racial discrimination in the labor market. Changes in tariffs and initial employment structures are used to show that, in locations where there were relatively larger increases in exposure to foreign competition between 1990 and 1995, there were also relatively larger declines in the conditional racial wage gap between 1991 and 2000. As predicted by theory, the initial wage gap and its decline were more pronounced in regions with more employment in concentrated sectors. The effect of increased competition on the racial wage gap was not driven by changes in returns to productive attributes, in the structure of employment, or in other labor market outcomes. We find robust evidence of a negative and permanent effect of increased competition in the market for final goods on discrimination in the labor market.
    Keywords: Discrimination, racial wage gap, competition, labor market, trade reform, Brazil
    JEL: J31 J71 J78
    Date: 2018–04–05
  4. By: Cardoso, Ana Rute (IAE Barcelona (CSIC)); Guimaraes, Paulo (Banco de Portugal); Portugal, Pedro (Banco de Portugal); Reis, Hugo (Banco de Portugal)
    Abstract: We bring together the strands of literature on the returns to education, its spillovers, and the role of the employer shaping the wage distribution. The aim is to analyze the labor market returns to education taking into account who the worker is (worker unobserved ability), what he does (the job title), with whom (the coworkers) and, also crucially, for whom (the employer). We combine data of remarkable quality – exhaustive longitudinal linked employer-employee data on Portugal – with innovative empirical methods, to address the homophily or reflection problem, selection issues, and common measurement errors and confounding factors. Our methodology combines the estimation of wage regressions in the spirit of Abowd, Kramarz, and Margolis (1999), Gelbach's (2016) unambiguous conditional decomposition of the impact of various omitted covariates on an estimated coefficient, and Arcidiacono et al.'s (2012) procedure to identify the impact of peer quality. We first uncover that peer effects are quite sizeable. A one standard deviation increase in the measure of peer quality leads to a wage increase of 2.1 log points. Next, we show that education grants access to better-paying firms and job titles: one fourth of the overall return to education operates through the firm channel and a third operates through the job-title channel, while the remainder is associated exclusively with the individual worker. Finally, we unveil that an additional year of average education of coworkers yields a 0.5 log points increase in a worker's wage, after we net out a 2.0 log points return due to homophily (similarity of own and peers' characteristics), and 3.3 log points associated with worker sorting across firms and job titles.
    Keywords: wage distribution, human capital spillovers, returns to education, peer effects, linked employer-employee data, high-dimensional fixed effects, firm, job title
    JEL: J31 J24
    Date: 2018–03
  5. By: Oulton, Nicholas
    Abstract: I propose a new explanation for the UK productivity puzzle. I graft the Lewis (1954) model onto a standard Solow growth model. What I call the neo-Lewis model is identical to the Solow model in good times. But in bad times foreign demand for a country’s exports is constrained below potential supply. This makes labour productivity growth depend negatively on the growth of labour input. I also argue that the neo-Lewis model can explain the fall in TFP growth, in the UK and elsewhere, after 2007. The predictions of the neoLewis model are tested on data for 23 advanced countries and also on a larger sample of 52 countries and find support.
    Keywords: Productivity; slowdown; TFP; capital; Lewis; immigration
    JEL: E24 F43 J24 O41 O47
    Date: 2018–03–25
  6. By: Cerqua, Augusto; Pellegrini, Guido
    Abstract: We measure the effects of a substantial place-based policy shock on the local labor market systems exploiting as an instrumental variable the peculiar information necessary to apply for capital subsidies in Italy during the period 1996-2006. The results show the presence of positive multipliers in the South of Italy, slightly lower than what was previously found for the US but much higher than those identified for European and Asian countries. The reasons for this finding lie in the greater accuracy of the data, in the relevance of the instrument used, and in the widespread underutilization of production factors.
    Keywords: Local multiplier, place-based policy, local labor market.
    JEL: F16 H25 J23 R23
    Date: 2018
  7. By: Lorenzo Ductor (Middlesex University London); Sanjeev Goyal (University of Cambridge and Christ’s College)
    Abstract: The fraction of women in economics has grown significantly over the last forty years. In spite of this, the differences in research output between men and women are large and persistent. These output differences are related to differences in the co-authorship networks of men and women: women have fewer collaborators, collaborate more often with the same co-authors, and a higher fraction of their co-authors are co-authors of each other. Moreover, women collaborate more and do so with more senior co-authors. Standard models of homophily and discrimination cannot account for these differences. We discuss how differences in risk aversion and an adverse environment for women can explain them.
    Keywords: Gender Inequality, Network Formation, Discrimination, Homophily, Risk Taking.
    JEL: D8 D85 J7 J16 O30
    Date: 2018–03–11
  8. By: Jonathan Morduch; Ariane Szafarz
    Abstract: Effective altruists wish to do good while optimizing the social performance they deliver. We apply this principle to the labor market. We determine the optimal occupational choice of a socially motivated worker who has two mutually exclusive options: a job with a for-profit firm and a lower-paid job with a nonprofit. We construct a model in which a worker motivated only by pure altruism will work at a relatively high wage for the for-profit firm and then make charitable contributions to the nonprofit; this represents the “earning to give” option. By contrast, the occupational choice of a worker sensitive to warm glow (“impure altruism”) depends on her income level. While the presence of “warm glow” feelings would seem to clearly benefit charitable organizations, we show that impure altruism can create distortions in labor market choices. In some cases, warm glow feelings may push the worker to take a job with the nonprofit,even when it is not optimal for the nonprofit.
    Keywords: altruism; occupation choice; nonprofit; warm glow; social performance; donation
    JEL: J24 L31 J31 D64 J44
    Date: 2018–04–13
  9. By: Song, Jae (Social Security Administration); Price, David (Princeton University); Guvenen, Fatih (Federal Reserve Bank of Minneapolis); Bloom, Nicholas (Stanford University); von Wachter, Till (University of California Los Angeles)
    Abstract: We use a massive, matched employer-employee database for the United States to analyze the contribution of firms to the rise in earnings inequality from 1978 to 2013. We find that one-third of the rise in the variance of (log) earnings occurred within firms, whereas two-thirds of the rise occurred between firms. However, this rising between-firm variance is not accounted for by the firms themselves: the firm-related rise in the variance can be decomposed into two roughly equally important forces—a rise in the sorting of high-wage workers to high-wage firms and a rise in the segregation of similar workers between firms. In contrast, we do not find a rise in the variance of firm-specific pay once we control for worker composition. Instead, we see a substantial rise in dispersion of person-specific pay, accounting for 68% of rising inequality, potentially due to rising returns to skill. The rise in between-firm variance, mostly due to worker sorting and segregation, accounted for a particularly large share of the total increase in inequality in smaller and medium firms (explaining 84% for firms with fewer than 10,000 employees). In contrast, in the very largest firms with 10,000+ employees, 42% of the increase in the variance of earnings took place within firms, driven by both declines in earnings for employees below the median and a substantial rise in earnings for the 10% best-paid employees. However, because of their small number, the contribution of the very top 50 or so earners at large firms to the overall increase in within-firm earnings inequality is small.
    Keywords: Income inequality; Pay inequality; Between-firm inequality
    JEL: E23 J21 J31
    Date: 2018–04–09
  10. By: Paul Verstraten (CPB Netherlands Bureau for Economic Policy Analysis); Gerard Verweij (CPB Netherlands Bureau for Economic Policy Analysis); Peter Zwaneveld (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: This article argues that the spatial scope of agglomeration economies is much more complex than is often assumed in the agglomeration literature. We provide insight into this issue by analyzing panel data on individual wages with a high level of spatial detail. The results show that agglomeration on short distances (<5 km) does not significantly affect wages, whereas it has a significant and positive effect on medium distances (5-10 km). This effect attenuates rapidly across geographic space, becoming insignificant after 40-80 km. These results, however, do not imply that nearby agglomeration is irrelevant for productivity. Regions must meet a critical threshold of nearby agglomeration in order to benefit from agglomeration on further distances. Furthermore, this article finds no evidence that foreign economic mass affects wages in the Netherlands, which suggests that national borders are still a substantial barrier for economic interaction. This article is a revised version of a paper published in February 2017. The original version of the article can be found here .
    JEL: R12 J24 J31
    Date: 2018–02
  11. By: McKay, Andy (University of Sussex); Newell, Andrew T. (University of Sussex); Rienzo, Cinzia (King's College London)
    Abstract: The creation of job opportunities for the increasingly educated youth population is a major current policy challenge in sub-Saharan Africa, even though very little is known about the extent to which young workers in the region are satisfied with the employment they currently have. This paper aims to help to fill this latter gap by presenting an analysis of job satisfaction of youth aged 15-29 in four countries from Eastern and Southern Africa: Madagascar, Malawi, Uganda and Zambia. We estimate ordered probit models of the degree of satisfaction in a respondent's main job, using data from the School-to-work Transition Survey (SWTS). It turns out that while a majority of workers are satisfied with their work, a large minority are not. We find that being over-educated or under-educated for the current job is strongly and negatively correlated with job satisfaction in all four countries. With respect to employment status, we find that those who report having chosen to be self-employed are substantially most satisfied in all four countries compared to formal sector wage employees, after controlling for many other factors. Formal wage employees are more satisfied than informal employees in only two of the four countries. These results reinforce the case made by Fields (2014) for not assuming that all self-employment is a 'last resort'. They also raise questions about the quality of available wage jobs for young people.
    Keywords: job satisfaction, young workers, Eastern and Southern Africa
    JEL: I31 J28 O55
    Date: 2018–03
  12. By: Engbom, Niklas (Princeton University); Moser, Christian (Federal Reserve Bank of Minneapolis)
    Abstract: We show that an increase in the minimum wage can have large effects throughout the earnings distribution, using a combination of theory and evidence. To this end, we develop an equilibrium search model featuring empirically relevant worker and firm heterogeneity. The minimum wage induces firms to adjust their equilibrium wage and vacancy policies, leading to spillovers on higher wages. We use the estimated model to evaluate the effects of a 119 percent increase in the real minimum wage in Brazil from 1996 to 2012. The policy change explains a large decline in earnings inequality, with spillovers reaching up to the 80th percentile of the earnings distribution. At the same time, employment and output fall only modestly as workers relocate to more productive firms. Using administrative linked employer-employee data and two household surveys, we find reduced-form evidence in support of the model predictions.
    Keywords: Worker and firm heterogeneity; Equilibrium search model; Minimum wage; Spillovers
    JEL: E23 E25 E61 E64 J31
    Date: 2018–03–12
  13. By: Benjamin Monnery; Maxime Le Bihan
    Abstract: This paper investigates the effects of sanctions on the behavior of deputies in the French National Assembly. In 2009, the Assembly introduced small monetary sanctions to prevent absenteeism in weekly standing committee meetings (held on wednesday mornings). Using a rich monthly panel dataset of parliamentary activity for the full 2007-2012 legislature, we study the reactions of deputies to (i) the mere eligibility to new sanctions, (ii) the actual experience of a salary cut, and (iii) the public exposure of sanctioned deputies in the media. First, our diff-in-diff estimates show very large disciplining effects of the policy in terms of committee attendance, and positive or null effects on other dimensions of parliamentary work. Second, exploiting the timing of exposure to actual sanctions (monthly salary cuts versus staggered media exposure), we find that deputies strongly increase their committee attendance both after the private experience of sanctions and after their public exposure. These results suggest that monetary and reputational incentives can effectively discipline politicians without crowding out intrinsic motivation.
    Keywords: political economy; political accoutability; sanctions; reputation; motivation
    JEL: D72 D78 J45 K42
    Date: 2018
  14. By: Paul Verstraten (CPB Netherlands Bureau for Economic Policy Analysis); Gerard Verweij (CPB Netherlands Bureau for Economic Policy Analysis); Peter Zwaneveld (CPB Netherlands Bureau for Economic Policy Analysis)
    Abstract: The existence of an urban wage growth premium is a well-established empirical fact. This article challenges the conventional view that faster wage growth for urban workers is caused by human capital spillovers. Instead, we find that the positive association between city size and individual wage growth is to a large extent driven by sorting of workers and firms, with inherently higher wage growth, into bigger cities. Having controlled for spatial sorting, we conclude that only young workers experience significant urban wage growth benefits. Wage level benefits of urban areas are important to all types of workers, especially the highly educated.
    JEL: R23 J31
    Date: 2018–02

This nep-lma issue is ©2018 by Joseph Marchand. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.